Australian FOREX Weekly Outlook 1/12/2008

Record rally in US stocks underpins market mood.

01/12/08

last week’s currency trading review

The Dollar gave up ground as stocks staged a 12% weekly gain the most since 1974. Higher yielding currencies such as the AUD and GBP were able to take advantage as safe haven flows were put on hold for the moment. Oil and other commodities also rebounded. The markets drew optimism from Obama’s economic team and the Fed’s announcement of a new $800 billion plan to free up spending. US Q3 GDP showed a -0.5% decline deeper than the -0.35 first thought. Of concern was the large drop in consumer spending in October dropping -1%. The Euro ended slightly up but was unable to take full advantage of the USD weakness as economic data out of the Eurozone matched US bleakness. November Eurozone Inflation posted a stunning fall to 2.1% from 3.2% in October. Also concerning was the large jump in EU unemployment to 7.7% from 7.5% previously. The EUR/USD gained 0.79% closing at 1.2689, after opening the week at 1.2589. The Japanese Yen was mixed with higher yielding pairs such as the GBP and AUD gaining well but the USD/JPY remaining slightly weak unable to take advantage of the rise US stocks. The BoJ monthly report showed weakening economic fundamentals. The USD/JPY fell 0.42% closing at 95.51 after opening at 95.91. The GBP staged a recovery as the equity rally allowed risk taking to reenter the market. PM Brown talked of a new stimulus package to help the economy as it enters a recession. BoE Governor King spoke of downside inflation risks as cheaper commodities filter through the economy. The GBP/USD gained 2.95% closing at 1.5370 after opening at 1.4920. The AUD gained on improved risk sentiment and commodities prices following equity prices higher. Little data was released but there was much speculation on the size of the RBA rate cut on Tuesday. The AUD/USD closed up 3.42% at 0.6544 after opening at 0.6320.

The forex trading week preview

In the States On Monday we have November Manufacturing ISM seen at 37.5 vs. 38.9 previously. Also on Monday Fed Chief Bernanke and Treasury’s Paulson Speaks. On Wednesday we have the November ADP Employment report expected to fall -195K vs. -157K previously. On Thursday weekly jobless claims are expected at 540k vs. 529K previously and Bernanke speaks on Housing. On Friday the market eagerly awaits the November Nonfarm Payrolls are expected to show a fall to -325K vs. -240K previously. The Unemployment rate is expected to tick higher to 6.8% vs. 6.5% previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone On Monday October German Retail Sales are seen rebounding to +0.5% vs. -2.3% and Eurozone November PMI manufacturing is expected to be confirmed at 36.2.On Wednesday Eurozone November Services are seen confirmed at 43.3 and October retail sales falling -0.4% vs. -0.2% previously. The market attention will be on the ECB on Thursday where the market expects a 0.5% cut to 2.75% from 3.25% and Trichet will be speaking. On Friday German Factory Orders for October are seen falling -0.5% vs. -8% previously. In the UK On Monday November PMI manufacturing is seen at 39.5 vs. 41.5 previously. On Wednesday Consumer Confidence is expected to fall to 54 vs. 55. On Thursday the BoE expects to announce a 1% rate cut to 2.0% vs. 3.0% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Japan light data week with the Q3 Capex expected to fall -9.9% vs. -6.5% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Australia Both the RBA and RBNZ are expected to cut aggressively this week. On Tuesday the RBA is seen cutting .75% to 4.5% and on Wednesday the RBNZ is seen slashing by 1.5% to 5.0% from 6.50% previously. Also released on Tuesday October Retail sales see falling 0.2% in October. On Thursday the October Trade balance is seen at 1.41Bn vs. 1.46Bn previously. We will provide our previews and reviews of these data releases in the daily summary.

·Euro – 1.2695

Initial support at 1.2645 (Nov 28 low) followed by 1.2568 (Nov 24 low). Initial resistance is now located at 1.2968 (Nov 27 low) at followed by 1.3081 (Nov 25 high)

·Yen – 95.45

Initial support is located at 94.61 (Nov 26 low) followed by 93.56 (Nov 20 low). Initial resistance is now at 97.43 (Nov 25 high) followed by 97.55 (Nov 17 high).

·Pound – 1.5375

Initial support at 1.5258 (Nov 28 low) followed by 1.5176 (Nov 26 low). Initial resistance is now at 1.5449 (Nov 28 level) followed by 1.5534 (Nov 25 high).

·Australian Dollar – 0.6530

Initial support at 0.6430 (Nov 26 low) followed by the 0.6333 (Nov 25 low). Initial resistance is now at 0.6618 (Nov 25 high) followed by 0.6696 (Nov 14 high).

·Gold – 818

Initial support at 786 (Nov 24 low) followed by 743 (Nov 21 low). Initial resistance is now at 830.5 (Nov 25 high) followed by 856 (Oct 15 high).